Australia: Doing Business in Australia - Dispute Resolution

In Australia, as in many other countries, the economic
uncertainty affecting the Euro-zone countries has kept the
disputation of commercial, finance and supply contracts at levels
similar to those seen during the Global Financial Crisis (GFC).
There are a number of recent and ongoing disputes that stem from
the GFC, such as misrepresentation claims in respect of financial
products. The workload and waiting lists of all major commercial
courts in Australia has remained steady over the past year.

Perhaps predictably, disputes arising out of commercial
contracts have tended to involve many complex and interrelated
issues, extensive documentation and the need for technical and
expert involvement in any dispute resolution. This has meant that
such disputes are costly and time consuming and, as a result, have
placed greater demands upon the court system. Also, disputes have
arisen from the specific circumstances triggered by the economic
downturn such as margin lending arrangements with stockbrokers or
bankers on share portfolios when falling share prices triggered
repayment obligations.

In Australia, the courts, lawyers, and commercial clients have
for years sought to achieve cost-efficient and timely resolution of
disputes. As a result Australia has often been at the cutting edge
of developments in alternative dispute resolution. Some forms have
been imposed by courts or government and others by agreement. There
is no one solution and any party to a dispute arising from a
commercial contract in Australia may avail itself of a number of
different options for resolution of that dispute.

Most commercial contracts now contain dispute resolution clauses
permitting the parties to escalate their dispute by stages and
which are structured so that a party may not pursue its claim in
court (except for injunctive court relief) until it has fulfilled
each step of the process. A typical contract may:

Require parties to issue a notice of dispute in a timely
fashion, setting out the nature and extent of the claim

Require good faith negotiations between senior executives of
the parties

Require mediation or some other informal dispute resolution
mechanism, for example, for the dispute to be heard by a dispute
review board or hearing by a technical or legal expert (this step
is often expressed as a precondition to litigation or
arbitration)

Permit a party only then to proceed to litigation or
arbitration.

The government recently enacted the Civil Dispute Resolution
Act 2011 (Cth), which requires parties to take genuine steps
to resolve a dispute (and set out those steps in a document) by the
time a claim is filed in a court of federal jurisdiction. This
encourages parties to engage in alternative dispute resolution
before costs are incurred and become a factor in settlement
decisions. At present, there is no similar legislation that applies
to claims in the state jurisdictions.

The following is a summary of the main dispute resolution models
and processes used for disputes in Australia.

LITIGATION

Courts operate at both federal and state government levels in
Australia. The separation of powers means that courts are
independent of and separate to parliament and the executive
government.

In most cases, the jurisdiction of a court is governed by the
amount in dispute or, in the case of the Federal Courts, the
subject matter of the dispute. In Australia, the highest level
court in each state (usually called the Supreme Court) has inherent
jurisdiction to resolve a dispute.

In some jurisdictions, industry specific tribunals or courts
have power to hear disputes (for example, the Land and Environment
Court in New South Wales and the Domestic Building List in the
Victorian Civil and Administrative Tribunal).

Unless the parties specifically agree to refer a dispute to
arbitration by means of a provision inserted in the commercial
contract, a claim can only be pursued in a court. As a result,
there is an increasing focus on parties to agree to arbitration or
dispute resolution provisions at the time of contracting.

In Australia, the court system operates on an adversarial basis.
This means that the parties involved in the proceeding retain
advocates who seek to persuade an impartial judge of the merit of
their position. They do this by examining witnesses and
representatives of the parties and applying strict rules of
evidence. This is in contrast with the inquisitorial system used in
civil law systems in much of Europe.

Each court has its own rules applicable to the commencement,
management and trial of a proceeding. The claim and all documents
issued to articulate or rebut that claim (called pleadings) must be
in a particular and specified form. A fee is payable to commence a
proceeding. Although judges do not charge to hear a proceeding,
some courts now impose a court hearing fee.

In many jurisdictions, specific lists have been established by
the courts to manage specific disputes such as building, technology
or insurance disputes. These lists are managed by a judge with
experience in hearing such disputes, and are intended to enable
prompt hearing of interlocutory or preliminary arguments, assist
with the quick identification of the issues and enable a hearing
date to be obtained at the earliest possible time. Proceedings are
listed regularly, sometimes each month at directions hearings,
which the parties are obliged to attend. At this time, the court
will make inquiries on the progress of the proceeding and make any
necessary orders for the management of the matter including its
trial. Such preparatory steps include provision of particulars,
cross-claims, discovery of documents and the preparation of
statements of evidence. The purpose of these steps is to avoid
ambush at trial and to ensure that each party knows the case
against it and all the evidence upon which the other party will
rely prior to a trial so, if appropriate, settlement discussions
may occur.

These specialist lists may incorporate a number of special
features to enable prompt and timely settlement of disputes, such
as:

Referral to compulsory mediation (see below)

If appropriate, determination by the court of a preliminary
point in order to dispose of the dispute or limit the issues in
dispute

Referral to a special referee to consider key technical
questions

Dividing the proceeding into an assessment of liability and
then quantum (if the claim is successful). This last step is
unusual but may occur where determining liability is
straightforward and the issue of damages is complex or
lengthy.

While some courts will grant a trial date at the first
directions hearing, in other courts it might take two years until a
trial commences. The timing for a trial can depend upon the
court's resources, the nature of the dispute and how long
the trial is likely to run. In New South Wales especially, court
delays can be lengthy.

In Australia, legal costs are said to "follow the
event". This means that the party that successfully brings or
defends a claim is likely to obtain a judgment that the other party
pays its costs. The costs that are usually payable under such a
judgment are usually "party/party" costs and amount to
about 60% of the actual costs incurred by the successful party.

Other cost orders may be made. For example, if the successful
party had earlier made an offer to settle the dispute on terms that
were more favourable to the unsuccessful party than the judgment
ultimately obtained, the successful party may obtain an order that
part or all of its costs be paid on a "solicitor/client"
or "indemnity" basis. Such an order might enable the
successful party to recover up to 80% or 90% of its actual legal
costs.

There is also an international perspective to the courts in
Australia as they have powers to assist parties to foreign
litigation. The Foreign Judgments Act 1991 (Cth) enables
Australian registration of a foreign judgment from certain courts
located in certain countries. This is useful if you obtain judgment
in a foreign country but the judgment debtor only has the relevant
monies or assets in Australia. Also, using the court powers under
the Foreign Evidence Act 1994 (Cth) and similar state
legislation, parties to foreign litigation can commence proceedings
and obtain orders for the taking of evidence in Australia. This is
useful if a case turns upon the evidence of a witness or documents
resident in Australia.

TIME FOR ISSUE OF PROCEEDING - LIMITATION PERIODS

In each state of Australia, legislation imposes a time period
before the end of which proceedings must be issued for a claim or
dispute. These time periods vary from state to state and depend
upon the type of claim. A failure to issue proceedings before the
relevant time period expires is likely to result in that claim
becoming "time barred".

In most Australian states, actions in simple contract or tort
must be brought within six years of either the date of breach
(contract) or the date on which loss was incurred (tort).

DOMESTIC COMMERCIAL ARBITRATION

Domestic arbitration is regulated in most states by recently
enacted uniform arbitration legislation (known as the Uniform
Commercial Arbitration Acts). These apply the United Nations
Commission on International Trade Law (UNCITRAL) Model Law on
International Commercial Arbitration, which aligns Australian
domestic arbitration practice with international arbitration
practice and allows parties to benefit from a wealth of precedent
on the matter. The Uniform Commercial Arbitration Acts by default
make arbitrations confidential and since the awards handed down by
an arbitrator are not published, arbitration is an attractive form
of dispute resolution to parties such as government agencies or
those involved in sensitive disputes.

Because the relevant court would otherwise have inherent
jurisdiction over a dispute, parties must expressly agree (in their
commercial contract) to use arbitration as the means of resolving
their dispute in order for the Uniform Commercial Arbitration Acts
to apply. This agreement usually takes the form of a clause in the
contract setting out an agreement to arbitrate any dispute which
arises under the contract. The Uniform Commercial Arbitration Acts
provide a limited right of appeal to the courts.

The Uniform Commercial Arbitration Acts address the procedural
framework of a commercial arbitration as follows:

Appointment of an arbitrator or composition of an arbitration
tribunal, if it is not otherwise dealt with in the contract between
the parties

Basis upon which an arbitrator may reach its decision

Enforcement of arbitral awards

Power of a party to stay legal proceedings if there is an
arbitration

agreement in place (anti-suit proceedings)

Power of the parties to challenge an award (usually
limited).

Domestic commercial arbitration is usually conducted on a very
similar basis to litigation, with similar procedures, legal
representation and costs, however there is significant scope for
the parties to tailor an arbitration proceeding to their respective
needs so as to inexpensively resolve their dispute in a manner that
is fast and final. The Uniform Commercial Arbitration Acts allow
parties to an arbitration access through injunctive relief (or
interim measures) and court-issued subpoenas. The arbitrators
selected are often solicitors, barristers or retired judges. In the
construction industry, experienced engineers, architects and other
building professionals with arbitration expertise are also often
used. They charge a fee to hear the claim and prepare the
award.

Currently, the Uniform Commercial Arbitration Acts have been
passed in New South Wales, Victoria and South Australia. Other
states are expected to adopt the legislation in the near
future.

INTERNATIONAL ARBITRATIONAL

International commercial arbitration is governed by the
International Arbitration Act 1974 (Cth) (IAA), which was
modified in 2010 to adopt the 2006 amendments to the UNCITRAL Model
Law (Australia is one of only 13 countries to do so) and the
UNCITRAL Model Law now covers the field in respect of international
commercial arbitrations - parties cannot contract out of it. The
IAA also gives effect to the 1958 Convention on the Recognition and
Enforcement of Foreign Arbitral Awards (New York Convention) and
the International Convention on the Settlement of Investment
Disputes between States and Nationals of Other States (ICSID
Convention). The alignment of the IAA with the Uniform Commercial
Arbitration Acts puts Australian practitioners in an ideal place to
assist with international commercial arbitrations.

The types of commercial disputes that tend to use international
commercial arbitration involve mining supply contracts, shipping
contracts and technology contracts. There is also the ability for a
party to commence international investor-state arbitrations under a
bilateral investment treaty with Australia.

There are a number of important features under the international
commercial arbitration framework in Australia, namely:

The adoption of the New York Convention gives parties certainty
in knowing that any foreign arbitral award they are granted will
permit them to enforce that award in Australia, and stay judicial
proceedings issued in Australia if they are brought in breach of an
arbitration agreement. Awards can also be enforced in any of the
150-odd member countries where the target party has assets.

The adoption of the UNCITRAL Model Law with 2006 amendments
gives foreign parties a familiar procedural law for the arbitration
and gives parties input to create their own arbitration process for
the fast and/or efficient conduct of their arbitration. It also
allows parties to draw upon the body of international precedent
that deals with the UNCITRAL Model Law.

The adoption of the ICSID Convention permits arbitration of an
investment dispute between a country and a national of another
country.

Sydney and Melbourne operate as centres for international
arbitration, with Sydney recently opening the Australian
International Disputes Centre, which is the specialist venue for
international commercial arbitration. The Australian Centre for
International Commercial Arbitration (ACICA) is a provider of
international arbitration services and is the default appointing
authority under the IAA. ACICA also has its own set of arbitration
rules (which parties may agree upon in the arbitration agreement),
which are based on the 1976 UNCITRAL Arbitration Rules. Other
providers used by Australian parties are the International Court of
Arbitration, the London Court of International Arbitration and the
Singapore International Arbitration Centre.

International commercial arbitrations can be run using a similar
procedure to domestic commercial arbitrations, using the following
features:

"Stop clock" procedures where the parties must make
their submissions and lead evidence from witnesses within a
specific time frame, for example two days

Quicker and less complicated exchange of pleadings and document
disclosure stages

The incorporation of terms of reference, which are agreed
following the appointment of the arbitrator or arbitrators.

These and other procedures make international commercial
arbitration a fast and efficient method of resolving crossborder
disputes and a real alternative to litigation.

MEDIATION

Mediation is a form of alternative dispute resolution. It
requires the participation of a third party (a mediator), whose
role is to assist the parties to a dispute to reach agreement on
the resolution of that dispute. A mediator does this by seeking to
align the parties' interests where possible, identifying
the possible outcomes of the litigation or arbitration, and
examining what options might be available to the parties to settle
the dispute.

A mediator does not make a binding determination on the dispute,
although he or she may make observations on the strength or
weakness of the parties' respective positions. Mediation is
usually conducted on a confidential basis. In Australia, mediators
tend to be senior barristers, solicitors or retired judges.

A mediation:

Allows each party to test the strength of its case on a neutral
third party

Gives the parties a forum to articulate their claim in an
informal environment

Gives an opportunity for discussions to occur between a level
of management higher than the "coal face"

Permits the parties to explore means of resolution that are not
simply reliant on payment of money or performance of work

Can help to preserve a commercial relationship before the
parties' positions become entrenched at trial or
arbitration

Is consensual in nature. If both parties sincerely want to
mediate their dispute, then the prospects of settlement are
probably higher.

In Australia, there has been a marked trend towards
court-ordered mediation over the last decade. This trend has
developed in response to pressure on court resources and is
particularly acute in the context of major, multi-party
disputes.

While this trend flies in the face of a consensual approach and
may result in the forced participation by parties in the mediation
process, statistics produced by the courts show that a high
proportion of disputes settle at mediation.

Mediation has been so successful that many commercial contracts
now contain a clause requiring the parties to mediate their dispute
prior to taking any formal steps in litigation or arbitration.

PROPORTIONATE LIABILITY

Since 2004, all states and territories have enacted
proportionate liability legislation relating to economic loss or
property loss claims arising from negligence or tort, and for
damages arising out of misleading and deceptive conduct.
Proportionate liability replaces the common law doctrine of joint
and several liability. The doctrine of several liability had the
effect that a claimant could recover all its loss and damage from
one respondent part, even if that party was not responsible for all
the relevant loss and damage. On the other hand, proportionate
liability allows liability to be apportioned between
"concurrent wrongdoers" according to their respective
responsibility for the loss or damage.

The proportionate liability legislation is important because
many major disputes involve more than two parties. A claimant needs
to understand the effect of the legislation on its prospects for
full recovery of its loss and damage, particularly if there are
varying levels of liquidity or insurance arrangements between all
the defendants.

The legislation impacts on many issues in a project, from the
indemnity and warranty clauses through to the dispute resolution
clause, to how and if a decision to join other parties into a
proceeding is made if a dispute arises.

There are significant differences in the way proportionate
liability applies in each jurisdiction. Specifically, the ability
of parties to "contract out" of proportionate liability
varies across jurisdictions. The relevant legislation in Victoria,
South Australia, the Australian Capital Territory and the Northern
Territory does not expressly allow for contracting out. Contracting
out is expressly disallowed under Queensland legislation. In
contrast, Western Australian legislation expressly allows
contracting out. New South Wales and Tasmanian legislation have
similar provisions to the Western Australian legislation, and this
has been generally understood to allow contracting out (although
this issue remains contentious amongst lawyers and is yet to be
fully tested by the courts).

A decision to "contract out" of the legislation can
have a significant impact on a party's insurance
arrangements. Contracting out may mean that the cover for a claim
is limited or non-existent.

This publication is intended as a general overview and
discussion of the subjects dealt with. It is not intended to be,
and should not used as, a substitute for taking legal advice in any
specific situation. DLA Piper Australia will accept no
responsibility for any actions taken or not taken on the basis of
this publication.

DLA Piper Australia is part of DLA Piper, a global law firm,
operating through various separate and distinct legal entities. For
further information, please refer to www.dlapiper.com

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